Canada: Voluntary Disclosure Accepted, but penalties still assessed

Taxpayers applying under the CRA’s voluntary disclosure program rely on the presumption that if all requirements of the program are met, any penalties otherwise payable under the Act will be waived. However, Canada (National Revenue) v. Sifto Canada Corp. (2014 FCA 140) suggests that this is not always the case. More detailed facts are expected to be disclosed in future court proceedings.

Sifto Canada sold rock salt to a related US corporation in its 2004, 2005, and 2006 taxation years. In 2007, it submitted an application under the voluntary disclosure program concerning the transfer price of rock salt for those years. In 2008, the minister accepted the disclosure as meeting the requirements of the program. The minister subsequently agreed with Sifto on the correct transfer price applicable to those years, based on a mutual agreement on the price reached by the Canadian and American tax authorities. The agreements settled Sifto’s tax liabilities for the years at issue. Later, for undisclosed reasons, the minister changed her mind and informed Sifto of her intention to issue assessments based on a different transfer price and to assess penalties. The penalties were assessed under subsection 247(3).

The facts set out above, and not much more, were revealed in the FCA’s decision on the Crown’s attempt to strike out a judicial review application by Sifto in the FC. As the FCA stated,

The record contains no explanation for the Minister’s decision to reassess as she did, and no explanation for the imposition of the penalties in the face of the accepted voluntary disclosure. That is because the proceedings in the Federal Court have not progressed to the point where an explanation is required.

The FCA had to decide whether Sifto’s application for judicial review was "so clearly improper as to be bereft of any possibility of success.” Sharlow J, writing for the FCA, dismissed the Crown’s appeal and allowed two court actions by Sifto to proceed: the appeal to the TCC for removal of the subsection 247(3) penalties, and the application to the FC for judicial review of the minister’s decisions under the voluntary disclosure program. However, Sharlow J suggested that the judicial review application be deferred until the penalties are either confirmed or cancelled by the TCC.

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